Responding to the Committee for a Responsible Federal Budget regarding Student Loan

The Committee for a Responsible Federal Budget released their analysis Partial Student Debt Cancellation is Poor Economic Stimulus. They (and most analysts) miss the point on why debt should be cancelled. 

Debt cancellation is not proposed to distribute money. It is done to write a wrong. 

Student loan programs are designed (or have the effect) of creating ever growing debt. It gives an unearned advantage to those graduates whose parents paid for their educations.

The federal government took over Stafford Loan issuance as an offset to the Affordable Care Act baseline. In other words, graduates (and non-graduates with student loan debt) have subsidized the Affordable Care Act BY DESIGN.. Having to pay back debt and buy health insurance at the same time leads to programs with slower payback or the inability to actually purchase health insurance under the Affordable Care Act.

Previously, when guaranteed student loan payments were deferred, interest would not accumulate. Under the current program - which for many of us was changed after we received loans - interest is no longer deferred for any reason. After every deferment, one can either make a balloon payment or capitalize the interest, thus making the debt harder to pay off and harder to bear.

It is correct that a hard dollar deferment is not the correct solution. The correct solution is to FORGIVE CAPITALIZED INTEREST.  This is appropriate for a debt that cannot be discharged in bankruptcy.  The upshot of not being able to discharge debt is that some people are receiving Social Security Retirement and having payments deducted from their checks. This is not good public policy.

If capitalized interest is forgiven, any overpayment of interest should be applied to principal owed. For some, there will be remaining debt. For most, there will not be. 

The financing of the Affordable Care Act should be broadened. It should neither be funded by the wealthy or by loan sharking student loan debtors. Instead, it should be funded by an employer-paid consumption tax, with partial offsets to tax payments for employer provided insurance and taxes actually collected funding a Public Option (which should also replace Medicaid for non-retirees). Medicaid for retirees and Medicare should be funded by a border adjustable goods and services tax, which should be broad based.

Why a difference? The goal is to not need a public option as employers cover every worker or potential worker. Using an employer based tax is an incentive to maximize employee coverage. Medicare, however, is an obligation on society as a whole and should be paid by a broad-based tax.

And for the future of education, make the first two years of college publicly funded (as well as vocational education) and pay students to attend.